To cut their prescription drug costs, a decade ago
America's health insurance plans sought to win price breaks based on
volume discounts. By pressuring doctors to prescribe only drugs on
which they had gotten the best deals, pharmacy benefit managers
(PBMs) cut pharmaceutical costs up to 30 percent for some health
plans. Now, PBMs control the drug choices of some 200 million people
in the United States. However, the savings extracted by PBMs have
fallen while Americans' drug costs have risen to about $161 billion
in 2002.

Experts suspect several
reasons for this:

PBMs once earned the bulk of their revenue by holding down
drug costs for health plans.

They now earn a large portion of their revenue from drug
companies that pay them undisclosed rebates and other financial
incentives for promoting certain medications.

The undisclosed payments to PBMs may be as much as $16
billion.

Health plan representatives have
filed numerous lawsuits demanding PBMs repay millions of dollars in
rebates and other financial incentives that they claim should have
been passed on to the health plans. In fact, some of the lawsuits
accuse PBMs of steering clients to higher-priced drugs for their own
profit and of failing to act in their plans' best financial
interests. The legality of drug-company payments to PBMs is in
dispute and probably will be decided in court.